Eu Digital Services Act and Digital Markets Act: What Are the Implications?

EU DIGITAL SERVICES ACT AND DIGITAL MARKETS ACT: WHAT ARE THE IMPLICATIONS? JANUARY 2021 EU DIGITAL SERVICES ACT AND DIGITAL MARKETS ACT: WHAT ARE THE IMPLICATIONS? The debate about how to regulate and ensure “digital” competition and guarantee a fair market is a global one. Jurisdictions around the world are grappling with how to handle the new tech environment – which includes the tricky issue of how to regulate the tech giants. Europe has decided to be a pioneer in the regulation of digital platforms and marketplaces with a proposed digital package – the first major overhaul of EU rules for online players for two decades. Paris-based Clifford Chance Partner The Digital Services Act (DSA). This Dessislava Savova, who specialises in will update the e-commerce directive from tech and commercial law and leads the 2000 and introduce new rules and Clifford Chance Continental Europe Tech enhanced responsibilities for online Group, says: “The proposed digital intermediaries and platforms. “The world package is a major milestone in building is a very different place compared with 20 Europe’s digital future and strategy. years ago. Since the adoption of the What Europe does now is likely to serve e-commerce directive, new and as a reference for other jurisdictions.” innovative services have emerged, In this briefing Clifford Chance experts changing the lives of citizens and shaping explore what is covered in the proposals and transforming the way they – and what is not, what is the scope communicate, connect, consume and do of the regulation, and what this could business on a daily basis,” Savova says. mean for businesses. At the same time, this has given rise to new risks and challenges for society, What is the Digital fundamental human rights and individuals. Package? Updating the e-commerce directive by adopting the DSA is aimed at addressing The Digital Package is built on these issues and equipping the EU with two pillars: modernised rules. The Digital Markets Act (DMA). This will introduce new rules (a list of Why the DSA and the DMA obligations and prohibitions, “do’s and are game-changers don’ts”) for large online platforms that are considered gatekeepers. “What is the • They will mark the end of a fragmented rationale for the DMA proposal? European approach in Europe. The new antitrust enforcement has not been regulations will apply directly in the entirely effective, because it often simply Member States. takes too long. At its core, the DMA is • They contain “GDPR-like” provisions about introducing new rules upfront and which are likely to deeply transform not intervening after the fact,” says the digital market; for example, Savova. Several initiatives have already extraterritorial reach, very high been taken at the national level, but these sanctions, strong EU-wide initiatives are inevitably limited to the enforcement mechanisms. national territory (and gatekeepers typically operate cross-border, globally). • They provide new and extensive Without action at the EU level, national obligations for digital players. legislation has the potential to lead to • They contain targeted rules to address increased regulatory fragmentation and issues raised by “very large platforms” this is what the European Commission is (DSA) and “gatekeepers” (DMA). seeking to avoid. 2 CLIFFORD CHANCE EU DIGITAL SERVICES ACT AND DIGITAL MARKETS ACT: WHAT ARE THE IMPLICATIONS? • The DSA and the DMA also raise meet the quantitative criteria are not off new challenges and questions for the hook. “The Commission can still businesses, including their scope, designate these companies as impact and interaction with other gatekeepers, but only after a market existing legislation in EU. investigation which will look at a set of qualitative metrics.” Determining who are digital gatekeepers So far, all that is known about the qualitative metrics is that the Commission The draft DMA targets so-called digital will look at key market characteristics, “gatekeepers.” The question of who such as barriers to entry created due to should be deemed a gatekeeper is at the network effects and data advantages, centre of the DMA and the Commission economies of scale, and factors has chosen to define gatekeepers around contributing to users being locked in. four main elements: “There’s a clear need for the Commission • They are active in one of eight so-called to give some robust guidance to the Core Platform Services. These include, market, perhaps even some safe amongst other things, app stores, harbours, because right now there is not search engines, marketplaces, digital enough in the DMA itself for companies advertising, and social media. to assess their level of risk with sufficient confidence,” says Vryna. • They have a significant impact on the market. They are very large companies Presumed gatekeepers are allowed to active across at least three Member argue against the rebuttable presumption, States and have a large number but the Commission has not indicated of users. what it expects successful arguments to • They control an important gateway for include. We can perhaps draw some other businesses to reach customers inspiration from the economic literature creating a degree of dependency. and precedents on abuse of dominance. For instance, a company could try and • They have a durable, stable presence rebut the presumption that it controls an on the market or are on their way to important gateway by showing that, while getting there in the near future. it has a large number of users, it operates in a multi-sided market where users multi- A big driver of the DMA has been speed home on both sides, or that switching and, to make it simple to identify who is costs are in fact low. One clarification the a gatekeeper, the Commission, in the Commission has given is that it won’t first instance, applies a rebuttable accept arguments based on efficiencies, presumption. A company is presumed to i.e. where a gatekeeper admits to being a be a gatekeeper once it meets certain gatekeeper, but claims that this has straightforward measurable thresholds – countervailing benefits to customers. these relate to turnover, market capitalisation, number of users, and stability of market presence. The designation process For a company to be liable under the Stavroula Vryna, a Senior Associate, DMA, there needs to be a Commission working between Brussels and London, decision designating it as a gatekeeper. specialising in advising tech companies The designation will tie to a specific on EU competition law and regulation, service, not to the company as a whole. says: “What is clear is that these However, that does not mean that the thresholds have been set low enough to gatekeeper’s obligations do not touch catch more than just Google, Facebook, services for which it is not designated a Apple, Amazon and Microsoft. The gatekeeper – in fact the gatekeeper will Commission expects approximately need to take a closer look at the 20 companies to be captured. Some will ecosystem around the gatekeeper service undoubtedly see those criteria as overly and the ancillary services involved. It inclusive, and this will definitely have an remains to be confirmed whether it effect on the amount of lobbying pressure will be the Directorate General for throughout the legislative process.” Competition or some other part of the She adds that companies that do not CLIFFORD CHANCE 3 EU DIGITAL SERVICES ACT AND DIGITAL MARKETS ACT: WHAT ARE THE IMPLICATIONS? Commission that will have the • Article 5(a). This prohibits combining competence to designate gatekeepers. personal data sourced from a core In practice, companies who self-assess platform service with data from other that they meet the quantitative thresholds services offered by the gatekeeper or must notify the Commission; and once from third-party services. This will affect the Commission has all the information it primarily companies active in digital needs, in principle, the designation is a advertising, particularly Google and relatively quick process, finalised within Facebook, who use the combination of 60 days. For companies that don’t meet data to gain an advantage in targeted the quantitative thresholds, the advertising. For example, Google Commission needs to open a market combines data about users’ searches, investigation and decide within 12 months. data derived from Android devices The Commission will keep these about users’ locations and activities, designations under review and will revisit data derived from its cookies about them at least every two years. users’ activities on 80% of the world’s commercial web sites, data from users’ A comparison with the YouTube viewing, and much more. But, DSA criteria as currently drafted, Article 5(a) would still allow such data combination if The DSA has a much broader scope than users consent to it, which – depending the DMA and it captures companies on how this consent provision is primarily based on their activity rather interpreted – might mean this article than on their market significance. It ends up being meaningless. establishes four tiers of obligations. Vryna says: “Imagine them like four concentric • Article 6(j). This obliges search engine circles: On the outer layer, we have a few gatekeepers to provide their rivals with basic obligations for all online access on fair, reasonable and non- intermediary services (which range from discriminatory terms to user-generated Internet providers to social media). search data. So Google would be Further in, we have obligations for the required to share virtually all data subset of hosting services (such as cloud generated by its users on its search providers). In the third circle, we have engine, including the data about obligations for online platforms, such as users’ long-tail searches. This could app stores and social media; and finally, have a dramatic impact on search at the centre of the circle, we have the engine competition.

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